Benkler on structure/agency

I am concerned with actual human beings in actual historical settings, not with representations of human beings abstracted from their settings. These commitments mean that freedom and justice for historically situated individuals are measured from a first-person, practical perspective. No constraints on individual freedom and no sources of inequality are cat- egorically exempt from review, nor are any considered privileged under this view. Neither economy nor cultural heritage is given independent moral weight. A person whose life and relations are fully regimented by external forces is unfree, no matter whether the source of regimentation can be un- derstood as market-based, authoritarian, or traditional community values. This does not entail a radical anarchism or libertarianism. Organizations, communities, and other external structures are pervasively necessary for hu- man beings to flourish and to act freely and effectively. This does mean, however, that I think of these structures only from the perspective of their effects on human beings. Their value is purely derivative from their impor- tance to the actual human beings that inhabit them and are structured—for better or worse—by them. As a practical matter, this places concern with market structure and economic organization much closer to the core of questions of freedom than liberal theory usually is willing to do. Liberals have tended to leave the basic structure of property and markets either to libertarians—who, like Friedrich Hayek, accepted its present contours as “natural,” and a core constituent element of freedom—or to Marxists and neo-Marxists. I treat property and markets as just one domain of human action, with affordances and limitations. Their presence enhances freedom along some dimensions, but their institutional requirements can become sources of constraint when they squelch freedom of action in nonmarket contexts. Calibrating the reach of the market, then, becomes central not only to the shape of justice or welfare in a society, but also to freedom.

From the intro to The Wealth of Networks by Yochai Benkler, a book that grows on me more and more in proportion to the portion of it I’ve read to date.

This thing’s not dead

I swear!

New blog

Created a new blog for research notes and less well-formed thoughts. All the inchoate stuff that has been appearing here of late now will go there instead.

Schelling quotes, part 1

From Micromotives and Macrobehavior by Thomas Schelling. (Thanks BMP.)

I like to believe that I can present significant ideas without formal models or mathematics. (3)

Well-said. You have to be smart to understand academic discourse, but you have to be even smarter to explain it in clear and accessible terms. (And Schelling did win a Nobel prize.)

I define game theory as the study of how rational individuals make choices when the better choice among two possibilities, or the better choice among several possibilities, depends on the choices that others will make or are making. (3)

Concise and lucid. See quote #1, perhaps?

How well each does for himself in adapting to his social environment is not the same thing as how satisfactory a social environment they collectively create for themselves. (19)

That’s the “systems” approach to social science, normative and positive components, in one short and straightforward sentence.

There are a lot of requirements for making the free market work well, or even work at all. In addition to physical protection and contract enforcement, there has to be a lot of shopping around so that people know what trades are available, or enough information so that without shopping around people know what to expect when they buy or sell. Behind a typical free market is centuries of patient development of property rights and other legal arrangements, and an extraordinary standardization of goods and services and the terminology for describing them. Think of all the things you can actually purchase by telephone, confident that you will get what you asked for or be able to tell the difference at a glance. A lot of legal and institutional arrangements are designed to protect the rights of people who might, though affected by a transaction, be left out of it. (29)

The institutional substrate? At least in part, I suppose. OTOH this is kind of Macroeconomics 101.

When we ask why the “free market” in Christmas cards doesn’t lead to optimal exchange, the answer is that there is not a market and there was no reason to expect optimal results in the first place. The free market, when it works, is that special case of knowledgeable voluntary exchange of alienable commodities. (33)

The market as a special sort of social system, a particular social phenomenon. I dig.

Information networks, racial segregation, marital behavior, and language development are often overlapping and interconnected. It is commonly observed that the work force of a shop or store or taxi company or motel is homogeneous. Whether it is Irish or Italian, Cuban or Puerto Rican, black or white, Protestant or Catholic, the homogeneity suggests purpose or design. But the determinant is likely to be a communication network. Positions are filled by people who learn of openings; people learn of the openings from acquaintances who already work there; acquaintances are from the same schools and neighborhoods and families and churches and clubs. And, the nearest thing to a guarantee that a new employee can have is an older employee who vouches for him. (40)

To be continued.

Concepts I Like: Structural equation modeling

Wikipedia says:

Structural equation modeling (SEM) is a statistical technique for testing and estimating causal relationships using a combination of statistical data and qualitative causal assumptions. This view of SEM was articulated by the geneticist Sewall Wright (1921), the economists Trygve Haavelmo (1943) and Herbert Simon (1953), and formally defined by Judea Pearl (2000) using a calculus of counterfactuals.

I don’t really have any comments at this point, other than that I think it might be useful to me in my intellectual endeavors and that I want to learn more about it.

Institutional economics — first pass

It turns out there’s a whole school of thought dedicated to answering my question from the other day. The question was this:

Has anyone done a comprehensive study on how state policies and regulations form the substrate for the effective operation of markets? (My guess on this one is: yes, probably.)

The answer is yes; in fact, there’s a whole school of thought devoted to it, not just a study or two. The school of thought is called (new) institutional economics. Wikipedia formulates the question this way:

New institutional economics (NIE) is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underly economic activity.

The New School’s intro to institutional economics page gives an even broader (and more tantalizing) definition:

The “New Institutionalist Schools” to refer to the collection of schools of thought that seek to explain political, historical, economic and social institutions such as government, law, markets, firms, social conventions, the family, etc. in terms of Neoclassical economic theory. New Institutionalist schools can be thought of as the outcome of the Chicago School’s “economic imperialism” — i.e. using Neoclassical economics to explain areas of human society normally considered outside them.

“Economic imperialism”? Sounds like that phrase I keep repeating: economics is the dean of the social sciences. I guess BMP and I aren’t the only ones who think so. Major thinkers in institutional economics include Ronald Coase, Oliver Williamson, and Douglas North, from whom I posted a quote the other day.

Note to self: look up and read these materials:

• Bromley, Daniel. Sufficient Reason: Volitional Pragmatism and the Meaning of Economic Institutions, Princeton University Press (2006).
• North, Douglass C. “Institutions, Institutional Change and Economic Performance”, Cambridge University Press (1990).
• Commons, John. “Institutional Economics,” American Economic Review Vol. 21 (1931): pp. 648-657.
• Hodgson, Geoffrey M., “The Approach of Institutional Economics,” Journal of Economic Literature v36, n1 (March 1998): 166-92.
• Chang, Ha-Joon, “Globalization, Economic Development and the Role of the State”, Zed Books (2002)
• Cheung, Steven N. S., “The Structure of a Contract & the Theory of a Non-Exclusive Resource,” J. of Law and Economics 13:49-70 (1970).
• Schmid, A. Allan, Conflict & Cooperation: Institutional & Behavioral Economics, Blackwell (2004).
• Keaney, Michael., “Critical Institutionalism: From American Exceptionalism to International Relevance”, in “Understanding Capitalism: Critical Analysis From Karl Marx to Amartya Sen”, ed. Doug Dowd, Pluto Press, 2002.
• Samuels, Warren J., “The Legal-Economic Nexus,” Routledge (2007).
• _____, “Institutional Economics,” The New Palgrave: A Dictionary of Economics, v. 2 (1987). pp. 866-64.
• John Kenneth Galbraith, “Power & the Useful Economist,” American Economic Review 63:1-11 (1973).
• John B. Davis “Why is economics not yet a pluralistic science?”, Post-autistic Economics Review, issue no. 43, 15 September 2007, pp. 43-51, http://www.paecon.net/PAEReview/issue43/Davis43.htm
• Hodgson, Samuels, & Tool, The Elgar Companion to Institutional & Evolutionary Economics, Edward Elgar 1994.

Restaurant: Good Enough to Eat

Good Enough to Eat, a down-homey restaurant at 83rd and Amsterdam, serves delicious American-style food for breakfast and dinner. Both are a trifle pricey (it is the upper west side) but worth it if you’re in the mood for some home cookin’. The atmosphere, from the whitewashed picket fence outside to the cartoon cows on the wall above the bar, is farmhouse meets kids’ playroom. It’s what you’d get if Meg Ryan’s character in You’ve Got Mail founded a restaurant instead of a bookstore. Thanks to Priyanka for showing it to me. Here’s NYMag’s listing.

New models of finance

The interesting thing once you start delving into this whole formal modeling business is that it all starts to seem the same — after all, when it comes down to it they’re all just abstracted structures. They’re highly useful as conceptual tools to organize and understand data, and modern economics in particular couldn’t get very far without them. But in light of the current credit crisis, Roger Ehrenberg offers some insightful analysis of how models can fail when they’re placed on a pedestal:

I grew up in a time when markets were considered to be “continuous.” Portfolio insurance. Robert Merton’s 1987 treatise Continuous-Time Finance. Liquidity was presumed to be available. And while markets could and did gap due to an event, new information, etc., it could and would clear with transactions taking place at the new level. The financial markets, through price discovery in the presence of liquidity, conveyed valuable information that could be used for both security selection and asset allocation. The field of financial economics, as such, was predicated upon the existence of bids and offers and, therefore, liquidity. And this phenomenon was assumed to persist across time.

But this is not the world I observe today; quite the contrary. Price movements are not only discontinuous, but the notion of liquidity across time as traditionally assumed simply does not exist. Something has happened to rock the prevailing academic paradigm. Have the experiences of the past six months essentially blown a hole through the heart of modern financial theory?

He goes on to offer some suggestions as to what phenomena new models will need to account for:

Today we live in a world fraught with risks that we barely understand, risks that modern financial theory doesn’t have great answers for. A new model is needed that incorporates the effects of discontinuity as an outgrowth of, among other things:

• Complexity - structured securities, derivative instruments;

• Interdependency - widely disseminated holdings that can pollute portfolios globally, hundreds of trillions in counterparty exposures;

• Intermediary errors - ratings that don’t reflect the risks, financial institutions with weak control environments and poor risk management practices; and

• Bad actors - originators, underwriters, traders and managers with mis-aligned motives.

We have seen examples of each of these in the past six months, seeming “black swans” that don’t appear so unusual any more. It’s not that these risks didn’t exist before. It is that their confluence when experienced over a short period of time yielded results that were unforeseen to many. Our models and academic frameworks needs to be robust enough to handle these occurrences and to provide a model for maintaining liquidity, price discovery and information dissemination. Based upon today’s market action we’ve got a long way to go.

GooOS, web operating systems, etc.

This is a relatively old but very important and insightful post from Kottke regarding Google and, more broadly, the future of the web. It’s entitled “GooOS, the Google Operating System.”

Great post about what Google is up to by Rich Skrenta. He argues that Google is building a huge computer with a custom operating system that everyone on earth can have an account on. His last few paragraphs are so much more perceptive than anything that’s been written about Google by anyone; Skrenta nails the company exactly:

Google is a company that has built a single very large, custom computer. It’s running their own cluster operating system. They make their big computer even bigger and faster each month, while lowering the cost of CPU cycles. It’s looking more like a general purpose platform than a cluster optimized for a single application.

While competitors are targeting the individual applications Google has deployed, Google is building a massive, general purpose computing platform for web-scale programming.

This computer is running the world’s top search engine, a social networking service, a shopping price comparison engine, a new email service, and a local search/yellow pages engine. What will they do next with the world’s biggest computer and most advanced operating system?

I was thrilled reading this today because I had been thinking along the same lines as I wondered about Gmail (and the 1GB of storage in particular)…and that Skrenta had made the argument so well. This weekend, as I hacked through a bunch of XHTML and CSS for an upcoming site redesign, I jotted down a few notes for a follow-up on a post I made over a year ago called Google is not a search company. I was going to call it “GooOS, the Google Operating System”.

My notes contained two of Skrenta’s main points: the importance of the supercomputer and the scores of Ph.Ds being Google’s main assets. A third key asset for Google is the data that they’re storing on those 100,000 computers. As I said in that post:

Google’s money won’t be made with search…that’s small peanuts compared to selling access to the world’s biggest, best, and most cleverly-utilized map of the web.

So. They have this huge map of the Web and are aware of how people move around in the virtual space it represents. They have the perfect place to store this map (one of the world’s largest computers that’s all but incapable of crashing). And they are clever at reading this map. Google knows what people write about, what they search for, what they shop for, they know who wants to advertise and how effective those advertisements are, and they’re about to know how we communicate with friends and loved ones. What can they do with all that? Just about anything that collection of Ph.Ds can dream up.

Tim O’Reilly has talked about various bits from the Web morphing into “the emergent Internet operating system”; the small pieces loosely joining, if you will. Google seems to be heading there already, all by themselves. By building and then joining a bunch of the small pieces by themselves, Google can take full advantage of the economies of scale and avoid the difficulties of interop.

Google isn’t worried about Yahoo! or Microsoft’s search efforts…although the media’s focus on that is probably to their advantage. Their real target is Windows. Who needs Windows when anyone can have free unlimited access to the world’s fastest computer running the smartest operating system? Mobile devices don’t need big, bloated OSes…they’ll be perfect platforms for accessing the GooOS. Using Gnome and Linux as a starting point, Google should design an OS for desktop computers that’s modified to use the GooOS and sell it right alongside Windows ($200) at CompUSA for $10/apiece (available free online of course). Google Office (Goffice?) will be built in, with all your data stored locally, backed up remotely, and available to whomever it needs to be (SubEthaEdit-style collaboration on Word/Excel/PowerPoint-esque documents is only the beginning). Email, shopping, games, music, news, personal publishing, etc.; all the stuff that people use their computers for, it’s all there.

Even though everyone’s down on Google these days, they remain the most interesting company in the world and I’m optimistic about their potential and success (while also apprehensive about the prospect of using Google for absolutely everything someday…I’ll be cursing the Google monopoly in 5 years time). If they stay on target with their plans to leverage their three core assets (which, if Gmail is any indication, they will), I predict Google will be the biggest and most important company in the world in 5-8 years.

Now, while Google does seem creepily omniscient at times, I doubt it’ll corner the whole “WebOS” market. Unlike PCs in their heyday, the web is just too decentralized for that. But different companies are developing elements of an emergent Web OS day by day. And I’m kind of excited about it, to tell the truth.

Bonfire of the Vanities, 2008 edition

Via Andrew Leonard of How the World Works:

It’s a gift that keeps on giving — the slings and arrows of outrageous fortune suffered by the obscenely rich when they are on the wrong side of a financial markets hiccup. I just wonder how Reuters reporters Kristina Cooke and Chelsea Emery were able to restrain their schadenfreudic giggles when they obtained the following quotes from a luxury interior decorator in New York…

“We only had about $50,000 worth of final touches,” to go, “and the wife called me last week and said stop,” said an interior designer, Darren Henault, whose work has been featured in magazines like Vanity Fair and Elle Decor.

“She said that they’re not poor, and are never going to be poor,” Henault said, “but their capacity for discretionary income for things like window valances just went out the window.”

The woman in question is married to an executive of Bear-Stearns, so we can appreciate her angst, although comments about things going “out the window” should be considered in highly bad taste on Wall Street in the spring of 2008.

Almost identical to a scene from Tom Wolfe’s (excellent) novel The Bonfire of the Vanities, which really should be required reading for all Columbia students. Schadenfreudic giggles indeed.